Despite Size, Racing Seen Poised for More Impact

Source: Charlotte Business Journal

April 21, 2006

Despite impressive recent growth, there doesn't appear to be any signs of a bubble when it comes to the impact of motorsports on the state's economy.

A recent study headed by John Connaughton, economics professor at UNC Charlotte, shows the value of goods and services produced by the industry is growing at 5.85% per year compared with a recent growth in the state economy of 3.4%.

Despite impressive recent growth, there doesn't appear to be any signs of a bubble when it comes to the impact of motorsports on the state's economy.

A recent study headed by John Connaughton, economics professor at UNC Charlotte, shows the value of goods and services produced by the industry is growing at 5.85% per year compared with a recent growth in the state economy of 3.4%.

That annual pace is expected to hold steady between 5% and 6% over the next five years, generating annual employment growth of 3% to 4% into the future, he estimates.

The study estimated motorsports' impact on the N.C. economy last year at $5.9 billion, with the industry employing 27,252. A 2003 study put the economic impact at $5.1 billion and employment at 24,000.

"There's so much in the way of new things that are going on that are basically going to generate that kind of growth," Connaughton says. New network television contracts that begin next year, as well as NASCAR's hopes of moving into new markets such as New York City and the Pacific Northwest, will help fuel the growth. He also cites growing diversity efforts that could increase the size of the fan base. "All these things are going to lead to bigger TV contracts and bigger advertising and sponsorship numbers."

While the funds from television contracts are split between NASCAR, tracks and teams, bigger contracts lead to more money for teams based in the state. That allows them to boost payrolls, which are already healthy. The study finds the direct compensation per job in the industry is $72,337 annually, roughly double the state's average salary.

Toyota is making the move to Nextel Cup and Busch Series competition next year and that should have a positive impact on the state, according to Connaughton.

"They're not coming in to be an also-ran. As a result, they will add another vehicle or several that will be competitive," he says. "Ultimately, it will change the level of sponsorship (needed) to be competitive. And that brings more money (to teams) and more people will be hired to get an edge."

Last month's announcement that the NASCAR Hall of Fame will be built in Charlotte won't by itself have a major impact on the state's economy, Connaughton believes, but he says it will be a factor in future growth.

"On the scale of a $4.5 billion local industry, $60 million in impact is not enormous," he says, referring to the effect of spending by hall visitors. "However, as a colleague of mine said, 'It's kind of the cherry on top of the sundae,'" Connaughton says.

"What it says is that NASCAR, the sanctioning organization, is invested in Charlotte. So the level of activity that NASCAR has in Charlotte already is likely going to increase as a result of that. That's a very important signal in terms of defining Charlotte as the center of the NASCAR business."

Geoff Smith, president of Roush Racing, which fields teams in each of NASCAR's top three series, isn't surprised by the amount of growth, and believes the industry is poised for expansion as suppliers and other ancillary businesses move into the area.

There are manpower shortages in certain areas, such as machinists, that could lead to employment growth, Smith adds.

"The people that are in the sport now all have capabilities of contributing to a broader economic expansion in North Carolina that is based in part on having this type of skilled-labor pool in the area," Smith says.

But with only 43 starting spots available in a race, Smith says there's a limit to the number of teams that will compete.

Connaughton's economic-impact study was part of a broader effort to analyze steps the state could take to protect the industry. Originally commissioned to determine the need for a state-funded testing facility, it determined that such facilities are best left to the private sector.

But it suggested other ways to help motorsports retain its stronghold in the Piedmont.

Part of the motivation for greater public involvement stems from the perceived threat of other regions that would like to attract industry participants.

Connaughton says it's no secret that Indianapolis would love to lure a top Nextel Cup team to a region dominated by open-wheel race teams. To keep that from happening, he says the state "simply needs to keep its eye on the ball (and) recognize that this is an important industry with quality jobs. It's a growth industry. And make sure their economic-incentives package is competitive with those states that are trying to lure Cup teams away."

Smith says his operation located in North Carolina due largely to a labor pool that's familiar with the business, as well as the fact that the area works well logistically for races in the Southeast. But with the sport's expansion to tracks in the West, other locations could prove viable. Smith is glad North Carolina officials are considering economic relief to the help keep the industry entrenched. An exemption is already in place for the North Carolina tax on jet fuel, which provides some relief for constantly traveling team members.

The industry would like to see the state copy Indiana in exempting car parts from the sales tax.

The state study doesn't offer many concrete steps for retaining the industry. One recommendation is to better publicize university programs that train students for motorsports.

"Race teams have become so technologically advanced and engineering-driven that primary advances in performance come not from parts and systems so much as from the engineering thinking and skilled craftsmanship of the work force that precedes them," the study states.

The study doesn't include recommendations for additional economic incentives for motorsports. "North Carolina has competitive economic incentives today, although the playing field is changing. This is an area that should be watched closely and steps taken if necessary," the study concludes.

Mark Ashenfelter is an associate editor at NASCAR Scene magazine and can be reached at (704) 973-1320 or mashenfelter@streetandsmiths.com.